2007/09/01 by Hakan Yilmazkuday · 1 voice · 1 citation
Economics, Econometrics and Finance · #Economic Theory and Policy #Global Financial Crisis and Policies #Monetary Policy and Economic Impact
paper · doi:10.1080/00036840600707068
openalex publication_date 2007/09/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/29
We compare, on a welfare loss basis, possible inflation targeting regimes supported by different exchange rate rules. For model parametrization, we estimate a forward looking monetary policy rule for Trukey. When variable inflation targets are taken into consideration, as opposed to the fixed targets used in prior research that use data from developed countries, forward looking Taylor rules provide a reasonable description of Central Bank behaviour in Turkey. By applying a calibration based on estimated parameters, we compare the loss functions under flexible inflation targeting and strict inflation targeting while taking into consideration the supporting regimes, namely a flexible exchange rate and a managed floating exchange rate. We find that the welfare loss function caused by four simultaneous shocks, namely a foreign interest rate shock, a monetary policy shock, a foreign output shock and a domestic output shock, is minimized under the flexible inflation targeting regime supported by a managed floating exchange rate rule.